KOREA...thoughts...
Korea Thrunet Announces 3rd Quarter Results for the
Period Ended September 30, 1999
SEOUL, and NEW YORK, Dec. 16 /PRNewswire/ -- The following was issued today by Korea Thrunet Co., Ltd.:
Korea Thrunet Co., Ltd. (Nasdaq: KOREA - news; ''Korea Thrunet''), Korea's leading broadband Internet-access services
provider and one of the leading data communications providers, today announced the results of its operations for the third
quarter ending September 30, 1999. All figures were unaudited and prepared in accordance with generally accepted
accounting principles in the United States for interim financial information.
3Q99 Results Summary: Year-over-Year and Quarter-over-Quarter Comparison Highlights
* Revenues increased 755% year-over-year (YoY) and 31% quarter-over-
quarter (QoQ) to KRW 20,331 million primarily due to an increase in the
number of end users for broadband Internet and the number of fiber optic
dedicated lines leased.
* Revenues from Broadband Internet Service increased 9,543% YoY and 80%
QoQ to KRW 6,913 million.
* Revenues from Data Communications Service increased 482% YoY and 15% QoQ
to KRW 13,417 million.
* Total number of end users for Broadband Internet Service increased
5,038% YoY and 53% QoQ to 90,693.
* Of 90,693 total subscribers, the number of residential end users
increased 2,114% YoY and 79% QoQ to 26,143. The number of commercial
end users increased 10,953% YoY and 44% QoQ to 64,550.
Business Outlook
Korea Thrunet, as a first mover in one of the fastest growing Internet markets in Asia, has retained very strong brand name
recognition among residential and commercial customers in Korea, and accumulated invaluable technical expertise and
know-how. Taking full advantage of our leading position and capitalizing on the rapid growth in demand for Internet services,
our immediate strategy focuses on the expansion of our subscriber base.
Following Korea Thrunet's listing on Nasdaq, we have experienced an increasingly rapid growth in our residential subscribers.
We believe one of the key drivers for the subscriber growth is expansion of our relationship with cable system operators and
enhanced service coverage. As one of the three marketing channels of our broadband Internet services, we will continue
expanding our exclusive agreements with cable system operators beyond the current 33 partners. We will also expand our
service coverage not only in KEPCO's(1) cable network areas, but also in areas outside of KEPCO's network by deploying
our own hybrid-fiber-coaxial cable (HFC) network.
During the current fourth quarter, we have introduced several new Internet services. This includes free Internet access to the
Korea Thrunet web page for e-mail accounts and personal home pages, Open Bulletin Board Service for multimedia bulletin
board, and True Box Service as a virtual mail box. We believe these services will play a very important role in creating and
expanding the virtual Thrunet community and will increase our pageviews, leading to a larger subscriber base.
In our data communications services, we believe our local fiber optic network will facilitate the delivery of broadband Internet
access services to our 150 existing data communications service customers as well as potential customers. In November, we
officially launched Thrunet Alpha Service targeting large corporations, enabling them to access the Internet via dedicated fiber
optic lines directly connected to their premises.
The statements included above and elsewhere in this press release that are not historical in nature are ''forward-looking
statements'' within the meaning of the ''safe harbor'' provisions of the Private Securities Litigation Reform Act of 1995. Korea
Thrunet cautions readers that forward-looking statements are based on the Company's current expectations and involve a
number of risks and uncertainties. Actual results may differ materially from those contained in such forward-looking statements.
Information as to those factors that could cause actual results to vary can be found in Korea Thrunet's Initial Public Offering
Registration Statement filed with the United States Securities and Exchange Commission on November 17, 1999, as amended,
or Risk Factors section of the Offering Prospectus.
Operating Highlights
Strong Revenue Growth:
Due primarily to steady but strong growth in data communications services, and a dramatic increase in revenues from
broadband Internet services, Korea Thrunet experienced strong revenue growth in 3rd quarter, 1999 (''3Q99''). In particular,
the proportion of revenues from broadband Internet services is growing rapidly from 25% in 2nd quarter, 1999 (''2Q99'') to
34% in 3Q99. During this period, the number of our broadband Internet end users increased by 53% from 59,347 in 2Q99 to
90,693 in 3Q99. As of November 30, 1999, we have 112,995 end users and 47,817 accounts.
Increase in Bandwidth Capacity and Ancillary Facilities Lease Fee Rates:
Effective July 1, 1999, KEPCO increased lease fee rates charged on bandwidth capacity, and on ancillary facilities that we
lease from KEPCO. The rate increase only applies to the lease agreement stipulating bandwidth capacity and ancillary facilities,
and does not affect our cable network lease contract. As a result, the amount of lease payments to KEPCO for data
communications business increased by 53% to KRW 10,122 million in 3Q99 from KRW 6,622 in 2Q99.
On December 14, 1999, KEPCO agreed that it will lower lease fee rates to the pre-July 1, 1999 level, with retroactive
adjustment from July 1, 1999. KEPCO will reimburse Korea Thrunet for the difference in the lease fees. The reestablishment of
lower lease fee rates will result in a decrease of KRW 3.4 billion in operating costs for 3Q99.
Microsoft Investment:
In September 1999, Microsoft Corporation made an equity investment in Korea Thrunet of approximately US$10 million.
Subsequent to this investment, Microsoft had 5.4% stake in Korea Thrunet as of September 30, 1999. Subsequently,
Microsoft purchased 4,525,714 additional shares of Korea Thrunet by exercising an option following our IPO in November. In
October 1999, we entered into a Business Cooperation Agreement with Microsoft, which provides a framework for
cooperation in a broad range of business activities, including joint development of content for the Korean market, new
broadband services and content, portal and content co-branding, content aggregation and e-commerce applications.
Year 2000 Compliance:
Korea Thrunet completed its Y2K compliance procedures in August 1999, by upgrading or replacing the hardware and
software that we had identified as non-compliant for Y2K purposes. We have also contacted our third-party vendors, licensors
and providers of software, hardware, content and services regarding their Y2K readiness. KEPCO, our principal supplier of
the fiber optic network, has assured us that its nationwide fiber optic network is Y2K compliant. We have identified scenarios
requiring contingency plans, and designated personnel responsible for coordinating the necessary contingency plans, in the event
of such occurrence. We estimate that the total cost of addressing the Y2K problem will be approximately KRW 1,250 million,
including approximately KRW 200 million reserve for contingency planning. As of the end of 3Q99, we have spent KRW 526
million in the aggregate.
3Q99 Financial Results: Year-over-Year and Quarter-over-Quarter Comparison
Income Statement
Revenues
Revenues in 3Q99 totaled KRW 20,331 million, up 755% compared to KRW 2,377 million in 3Q98 and up 31% compared
with KRW 15,506 in 2Q99.
Revenues from Broadband Internet Service, Thrunet Service, increased 9,543% to KRW 6,913 million in 3Q99 from KRW
72 million in 3Q98 and 80% from KRW 3,846 million in 2Q99. The number of Thrunet Service end users increased by
5,038% from 1,765 as of 3Q98 to 90,693 as of 3Q99 and by 53% from 59,347 as of 2Q99.
Revenues from Data Communications Service increased 482% from KRW 2,305 million in 3Q98 and 15% from KRW
11,660 million in 2Q99 to KRW 13,417 million in 3Q99. The increase in our data communications services revenues was due
to a substantial increase in the number of lines leased and average sales per leased line. The number of lines leased increased
390% from 2,321 in 3Q98 and 24% from 9,180 in 2Q99 to 11,372 in 3Q99.
Operating Costs
Our operating costs in 3Q99 totaled KRW 17,771 million, up 502% from KRW 2,950 million in 3Q98 and up 44% from
KRW 12,351 in 2Q99. However, our operating costs as a percentage of total revenues have decreased to 87.4% in 3Q99
from 124.1% in 3Q98 and increased from 79.7% in 2Q99. The increase in operating costs was due to higher lease payments
made to KEPCO for our broadband Internet service and data communications service. Lease payments to KEPCO increased
804% to KRW 11,803 million in 3Q99 from KRW 1,305 million in 3Q98 and 57% from KRW 7,440 million in 2Q99. The
increase was due primarily to a substantial increase in our utilization of KEPCO's fiber optic and HFC network, and an
increase in lease fee rates for bandwidth capacity and ancillary facilities.
Selling, General and Administrative Expense
While selling, general and administrative expense increased by 164% from KRW 1,772 million in 3Q98 to KRW 4,685 million
in 3Q99 and down by 4% from 4,896 million in 2Q99, SG&A was 23.0% of total revenues in 3Q99 compared to 74.6% in
3Q98. Year-to-Year increase in selling, general and administrative expense reflected 202% increase in advertising from KRW
355 million in 3Q98 to KRW 1,069 million in 3Q99, primarily due to substantial increases in television and newspaper
advertisements following the launch of Thrunet Service. Quarter-to-Quarter decrease in selling, general and administrative
expense was primarily due to decrease in advertising and R&D costs. Advertising costs decreased by 34% from KRW 1,609
million and R&D costs decreased by 32% from KRW 1,002 million.
Depreciation and Amortization Expense
Depreciation and amortization expense increased 296% from KRW 1,688 million in 3Q98 and 36% from KRW 4,925 million
in 2Q99 to KRW 6,685 million in 3Q99, primarily as a result of our investment in additional local fiber optic network.
Operating Loss
Operating loss increased 32% from KRW 6,666 million in 2Q99 and increased 118% from KRW 4,034 million in 3Q98 to
KRW 8,810 million in 3Q99. Operating loss ratio against revenue for 3Q99 was -43.3% compared to -169.7% in 3Q98 and
-43.0% in 2Q99.
Other Income (Deductions)
We had other deductions of KRW 9,201 million in 3Q99, primarily reflecting substantial interest expense. We also had other
deductions of KRW 2,345 million in 2Q99, primarily due to interest expense. On the other hand, we had other income of
KRW 1,166 million in 3Q98, primarily as a result of interest income and foreign exchange transaction gains, offset in part by
interest expense. Interest income decreased 40% from KRW 2,162 million in 3Q98 and 16% from KRW 1,539 million in
2Q99 to KRW 1,290 million in 3Q99, primarily reflecting a 34% decrease in the average amount of our domestic deposits
from KRW 97,367 million in 3Q98 and 12% decrease from KRW 72,799 million in 2Q99 to KRW 64,389 million in 3Q99.
Interest expense increased 217% to KRW 6,487 million in 3Q99 from KRW 2,047 million in 3Q98 and 9.6% from KRW
5,918 million in 2Q99. The increase was primarily due to a 104% increase in aggregate outstanding indebtedness to KRW
253,362 million in 3Q99 from KRW 123,949 million in 3Q98 and 18% increase from KRW 215,243 million in 2Q99.
Income Tax
We had an income tax benefit of KRW 81,619 million in 3Q99, KRW 34 million in 3Q98 and KRW 73 million in 2Q99. On
an interim basis, we provide for income tax expense or benefit based on our estimate of the annual effective tax rate for the full
fiscal year.
Net Loss
Net loss increased 121% to KRW 19,748 million in 3Q99 from KRW 8,938 million in 2Q99 and increased 597% from KRW
2,834 million in 3Q98. Loss per share of common stock increased 120% to KRW 372 in 3Q99 from KRW 169 in 2Q99 and
increased 593% from KRW 54 in 3Q98.
Balance Sheet
Investment in Hanaro Telecom Inc.
In August, 1999, Korea Thrunet made an additional investment in Hanaro Telecom by purchasing 2,878,866 shares at KRW
11,800 per share. This is in addition to our original investment in Hanaro Telecom of 9.8 million shares at par value, KRW
5,000. Based on the market value of these shares as of September 30, 1999, in 3Q99 the Company recorded unrealized
valuation gain of total KRW 156 billion on the total holdings in Hanaro Telecom. This includes KRW 21 billion unrealized gain
on the new investment and KRW 135 billion on the original investment.
The market value adjustment of Hanaro shares was made during 3Q99 because major shareholders of Hanaro agreed in
September 1999 to remove Hanaro Shareholders Agreement which had restricted free sale of Hanaro shares.
Capital Expenditure
Our investment in 3Q99 for facilities was KRW 44,688 million in total, including KRW 19,015 million for broadband Internet
service and KRW 25,673 million for data communications services.
Stronger Capital Structure
On November 17, 1999, Korea Thrunet listed its Class A common shares through an initial public offering (IPO) on Nasdaq.
Korea Thrunet offered 11,615,000 shares including a full exercise of an over-allotment option at US$18.00 per share. Net
proceeds after underwriting discount was US$194.4 million, or KRW 228,228 million.
On November 23, 1999, Microsoft Corporation, our principal technology partner, exercised their option to purchase
4,525,714 shares at US $8.08 or KRW 9,350 per share. As a result, Microsoft's share ownership of Korea Thrunet increased
from 5.4% in September to 10.5%.
Leaving all other factors unchanged and applying IPO and MSFT investment only in the current 3Q99 balance sheet, the result
is as follows:
3Q99 Applying IPO & MSFT
investment only
(KRW in mil.) (KRW in mil.)
Total Liabilities 395,696 391,449
Total Stockholders' Equity 266,507 537,050
Common Stock 139,543 179,894
Additional Paid-in Capital 52,599 282,791
Accumulated Deficit (47,555) (47,555)
Loans to Employees to
Acquire Common Stock (1,506) (1,506)
Accumulated Other
Comprehensive Income 123,426 123,426
Debt-to-Equity Ratio 148.5% 72.9%
Company Information
Founded in July, 1996, Korea Thrunet Co., Ltd. is the leading provider of high-speed Internet services in Korea, with 90,693
end users as of September 30, 1999. Thrunet service features ''always-on'' Internet access at speeds up to 100 times faster
than traditional dial-up Internet access, with compelling multimedia content ranging from on-demand music videos and Internet
telephony to multimedia bulletin board and multimedia chatting services. Korea Thrunet also provides facilities-based data
communications services to 150 corporate customers in Korea, including several major telecommunications carriers such as
SK Telecom Co. Ltd. and Shinsegi Telecom Inc.
Corporate Headquarters:
Korea Thrunet's principal offices are located at 1338-5, Seocho-2 dong,
Seocho-ku, Seoul, Korea 137-072.
Phone: 822-3488-8058 Fax: 822-3488-8511
thrunet.com |
